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Protecting Incentives to Innovate while Addressing Healthcare Costs

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In a previous blog post, we reviewed key factors that drive the research, development, and pricing of prescription drugs. Drug research is extremely expensive and yields only about one successful medication for every 20 candidates in development. Those medications then have a limited period of patent protection in which to earn back the cost of that development while funding the company’s ongoing research efforts and other operations.

Patents historically have provided inventors with a means to regain investment losses and have been proven to sustain economic growth. But when it comes to patent protection for life-saving medication, how do we sustain this incentive for innovation while still reining in healthcare costs?

That is a key question facing our country today, as we strive to encourage innovation and breakthrough treatments from pharmaceutical companies while ensuring that the resulting medications remain affordable to those who need them.

The high cost of prescription medication has led to calls to further curtail or even remove patent protections, a move many argue would eliminate the incentive for pharmaceutical companies to attempt the journey from the chemistry lab to the pharmacy shelf. Even the existing patent structure, with its demanding time constraints, has removed this incentive for many drug manufacturers. These manufacturers eschew research and development entirely, contenting themselves to produce generic medications that have previously lost their patent protection.

The further reduction of patent protections would, in the very near term, certainly result in more medications becoming more widely available at greatly reduced cost. Such a policy shift, however, would mortgage the future of medicine for the benefit of the present. Without any possibility of recouping the colossal investments required by new drug development, more companies almost certainly would abandon expensive and unprofitable research and development, dramatically slowing the pace at which new medications would become available.

How, then, might we make more of today’s first-line medications more readily available and affordable to all the people who need them? There are no easy answers, but one possible model is suggested by the development of one of the most important pharmaceutical advances of the 20th century: the polio vaccine.

The legendary Dr. Jonas Salk famously declined to patent the polio vaccine. One of the most important factors in his decision was that the vaccine’s development was substantially funded by small donations to a charitable foundation. That foundation had been set up with the explicit goal of eliminating the scourge of polio, which touched a child in nearly every community in the United States until the 1950s. This highly visible public health menace inspired tens of millions of Americans to make small contributions to the foundation, which takes its modern name from the spirit of that crowd sourced fund drive: The March of Dimes.

Indeed, there are numerous examples in today’s pharmaceutical world of private charitable foundations funding the initial scientific research–often the most painstaking and labor-intensive part of drug development – then garnering interest from drug companies once the initial hurdles have been overcome. Increased use of such partnership models also might offer possibilities for addressing other types of drug development where a pressing public health need has not yet generated sufficient economic incentive to spur the necessary research and development.

The evolution of increased microbial resistance to antibiotics, for example, is a widespread problem with potentially catastrophic ramifications for global public health. Most health officials agree that new antibiotics are desperately needed, but the current economics of the drug development cycle make it nearly impossible to develop such compounds at even a marginal profit. As a result, relatively few new antibiotics are in development.

A public health initiative that brings together governmental bodies, private sector foundations, and the pharmaceutical industry has been one suggested vehicle to address not only this looming crisis, but the numerous other circumstances where public health concerns and the market-driven incentives provided by the patent protection system do not neatly overlap.

High prescription drug costs are a symptom of an economic reality we all face. The task of the near future will be to balance the competing needs of protecting incentives for innovation while preventing healthcare costs from skyrocketing.